Linking Electronic Payments and Social Cash Transfers in India

From April to September 2013, CGAP directed a research study to better understand how the electronic payment of social benefits in Andhra Pradesh, outside of the future integration of Aadhaar, impacts the lives of poor beneficiaries, the agents who complete the transactions, and the banks who are disbursing funds. In addition, analysis was done of the potential impact that a full roll-out of the Aadhaar system could have in the already largely electronic payment system of Andhra Pradesh. The research showed that while there are no banking regulations that prevent the electronic payments from being used to promote financial inclusion, there are design elements in the program that act as barriers and prevent electronic payments from linking beneficiaries with additional financial services.

Transcript of "Linking Electronic Payments and Social Cash Transfers in India"

2.
A Guide to Indian Financial Inclusion Terminology
•
AP: Andhra Pradesh – a state in southern India
•
G2P: government-to-person payments
•
NREGA: National Rural Employment Guarantee Act – a workfare social protection program that
guarantees 100 days of work to every Indian household, if desired
•
SSP: Social Security Pensions
•
SHG: Self-Help Groups – a women’s-only savings group system
•
SERP: Society for the Elimination of Rural Poverty - an organization to facilitate poverty reduction
through social mobilization and improvement of livelihoods of rural poor in Andhra Pradesh
•
UIDAI: Unique Identification Authority of India – a project to provide every Indian resident with a
Unique ID number known as Aadhaar
•
EBT: Electronic Benefit Transfer – the electronic payment system to pay social cash transfers
•
DBT: Direct Benefit Transfer – the electronic payment system build on the Aadhaar system to pay
social cash transfers
•
CSP: customer service point – the equivalent of what other countries refer to as “agents”
•
BC: Business Correspondent – companies that manage networks of CSPs on behalf of banks
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3.
Research summary
• In partnership with the World Bank and SERP, CGAP carried out a
research project from April to September 2013 to understand the EBT
system developed in the state of Andhra Pradesh since 2006.
• The research analyzed the policy, supply, and demand side aspects
of this EBT ecosystem, with a view that lessons from AP are valuable
for the DBT rollout across India, as well as global knowledge on G2P
and financial inclusion.
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4.
Key Research Questions
1. What are the various types of technology and payment models
being used and which are most efficient?
2. What is the value of a unique ID system?
3. Business Case for Banks: How is the 2% government commission
broken up via cost to bank, BC, and last mile agent?
4. What is the experience of recipients? Why are millions of payment
bank accounts not being used?
5. Is there a business case to provide financial services through G2Plinked accounts? What are the barriers?
6. Indigenous Peoples and Remote Areas: How can the program
better serve hard-to-reach segments?
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5.
Key Findings
•
An electronic system of benefit transfers provides more efficiency and less
leakages. Most recipients note a high level of trust and satisfaction with the
system as a payment disbursement channel.
•
Most payments are delivered to recipients within a month, 25% of NREGA
payments are delivered within two weeks.
•
The 2% fee paid by the government to banks is not enough, as the cost of
delivery is higher. As a result banks are at a loss, and agents make less
than minimum wage rate.
•
Most accounts are not being used by recipients. The potential of using this
channel to achieve financial inclusion is unmet, especially since recipients
widely use other formal and informal financial products.
•
Technology is not a barrier to use for recipients, but this is largely because
transactions are intermediated by CSPs on behalf of recipients.
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11.
Monthly household income data during May-June 2013
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•
•
•
•
The main sources of monthly income are wages earned by the household and the
payments received from government.
Monthly income range is more or less equally distributed between Rs. 2,000-10,000.
Average monthly household income is around Rs. 4,600 per month.
Average monthly expenditure is Rs. 4,031
The months of May and June is an agricultural lean season therefore the volume of
payments through NREGA is higher than average.
Participation of sample
households in type of
government schemes (in %)
G2P Scheme
Average Income from govt
(in Rs.)
NREGA
NREGA
59
Pension
43
Scholarships
Rs. 2017
Pension
Rs. 313
Scholarships
Rs. 300
32
0
20 40 60 80 100
1 USD = 62 Indian Rupees
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13.
Trust is high, but suffers in indigenous communities
Strongly Agree &
Agree
Base:All respondents
I have trust that money is
credited on time from the
government and given to
me.
I have trust that proper
amount is transferred from
the government to me.
I have trust on the mode of
payment used by the
government to disburses
payment to me.
I have trust on the agent
who hands over the money
to me
I believe that there is
maintenance of proper
government accounts
I am confident that there is
no manipulation of funds by
the government.
I believe that the system is
transparent in disbursing
payments to recipients .
Overall
Karimnagar
Adilabad
Mahabub
Nagar
Khammam
Warangal
Nalgonda
2460
200
216
196
221
198
183
82
80
56
96
61
97
87
77
61
49
98
57
88
78
74
56
51
98
52
83
64
74
58
49
98
65
80
63
74
60
40
98
54
79
72
71
62
34
98
48
77
70
72
68
44
98
51
74
86
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14.
Recipients are active users of financial tools
Recipients widely use both formal and informal financial products but not their
EBT accounts
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15.
Despite their low incomes, recipients do save
Number of people saving
(in %)
Common Saving Methods
(in %)
Yes, 34
Dwakra group
72
Insurance
No, 66
16
Savings account
16
Average MHI : Rs. 4610
Average expenditure : Rs. 4031
0
Base: All Respondents- 2460
20 40 60 80 100
Base: Those who have monthly savings- 833
A third of the households claimed to regularly save. A common method of saving is through
dwakra or savings groups (self-help groups for women).
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16.
Recipients have comfort yet passivity with technology
• Technology is rarely a barrier
to use
• Whether smart card or mobile
phone, there is no noticeable
different in the user experience
• This is due to the fact that the
interaction between the user
and the technology is always
mediated by the CSP and is
perceived to be not more than
a government payment
channel.
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17.
Recipients are unaware of account functionality
Several aspects of the end
recipient experience are
compromised because of poor
information access.
These include information on :
• Whether these are bank
accounts
• What services they can avail
through the account
• Account balances
• Whether payments have been
credited into their accounts
• The reasons for payment
delays
• An expected date by which
payment is likely to be
received.
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18.
Recipients trust community-based agents, but CSPs need more
support
One of the biggest advantages of the communitybased CSP system is the trust inherent in it and
the extent to which it mitigates recipient’s
anxieties and frustrations.
However, there is a clear need for additional
support:
•
To manage crowds at peak transaction
times, she would often seek the assistance of
someone familiar and trustworthy.
•
In addition to an inadequate physical and
human resource infrastructure, the CSP also
has to negotiate several technical and
process glitches without a clear error
resolution mechanism for either.
•
The CSP’s own salary and associated
incentives are often delayed and transferred
without any explanation about the basis of
calculation.
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19.
There are significant differences in G2P payment delivery in
indigenous communities and remote areas
The indigenous communities present a completely
different set of challenges when evaluating the
impact of electronic delivery of government benefits.
•
Higher workload for the CSP compared to plain
areas, forcing the CSP to improvise when it
comes to performing her duties comprehensively
•
Operational barriers due to network unavailability
resulting in a much higher incidence of manual
over-rides for making payments.
•
Huge delays in receiving payments specially in
the case of NREGA wages leading to lesser trust
in the system.
•
CSPs have to shoulder comparatively higher risk
while transporting the money to the village
because of the large distances they need to
travel.
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20.
Key Messages from Demand Side Research
●
•
Focus on clear and consistent communication
•
Recipients need to understand what the account is and the
functionality it offers.
•
They need to be informed when payments have been credited, how
much to expect and any reasons for possible delays.
Develop an effective grievance redress system
•
Develop a system where recipients can communicate directly to
express any payment-related issues
• Especially in indigenous communities, create payment access points in the
full commercial ecosystem, such as leveraging the weekend markets.
• Design financial products so that small amounts from payment benefits
can help to smoothen income fluctuations and consumption needs.
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23.
Comparison: CSP Network Management
Indicator
Agent recruitment
lead time: Time from
the exam /interview of a
CSP to appointment.
Training support:
Depth of training and
level of hand holding
support provided to
CSPs/BPMs during onboarding.
Salary and
Commissions
Bank 1 – BC 1 Bank 2 – BC 2 Bank 3 – BC 3
Bank 4 – BC 4
Aadhaar pilot
India Post
BPM- 30 to 45
days
60 to 270 days
7 to 15 days
90 days
30 days
CSP- 15 to 30
days
3 day classroom
training. Field
level support by
MCs
Rs. 500 per
month (fixed)
and 0.25% of the
total
disbursements
1-2 day
classroom
training
2-3 day
classroom
training
3 days classroom
and onsite
covering POS
handling, cash
handling and
disbursement
processes
Rs. 2,000 (fixed)
Rs. 500 per
month or 0.5% of
the
disbursements
made in a month,
whichever is
higher
Rs. 500 per
month (fixed)
and 0.25% of the
total
disbursements
1 day of
classroom
training by AP.
Online staff for
both BPMs &
CSPs.
• BPMsRs.5,000 to
Rs.8,000+
0.15%
• CSPs – 1.0%
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24.
Comparison: BC Management & System Performance
Indicator
Work load per
BPM/CSP (transactions
per month)
Transaction
Processing time :
Average time per
transaction
Transactions per day
per BPM/CSP
Interconnectivity:
Beneficiaries are able to
transact at multiple
BPMs/CSPs and also at
the linked branch
Bank 4 – BC 4
Aadhaar pilot
India Post
Between 5001000
Between 7002,000 (average is
1,700)
2 to 3 minutes
1 to 2 minutes
with good
connectivity
1 to 2 minutes,
with good
connectivity is
and low load.
10-15 minutes
during peak load.
During SSP
payment days
transactions can
go up to 100 per
day
During SSP
payment days
can go up to 100
per day
During SSP
disbursements
can go up to 70
transactions per
day
No
No
Bank 1 – BC 1 Bank 2 – BC 2 Bank 3 – BC 3
Between 5001,000
2 to 3 minutes if
connectivity is
good
During SSP
disbursements
can go up to 70
transactions per
day
No
Between 5001,000
2 to 3 minutes if
connectivity is
good
During SSP
disbursements
can go up to 70
transactions per
day
No
Between 4001300
Yes
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25.
AP
The Business Case for Banks is Weak
•
For every Rs. 100 that the AP
Government disburses, the
Government pays the bank
Rs. 2
•
•
•
1 Rupee is withheld until
proof is submitted that all
payments has been
disbursed
This final payment is usually
paid to the bank with
significant delay, forcing the
bank to front the 1 Rupee
For every Rs. 100 that the
bank disburses, the total costs
of disbursement in locations
with full scale are
•
•
Rs. 2.93 in Bank 1 – BC 1
Rs. 2.65 in Bank 3 – BC 3
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27.
Two EBT models That Have Achieved Scale
Bank Viability to Bank 1
(% of disbursement)
Bank Viability to Bank 3
(% of disbursement)
2.50%
2.50%
2.00%
2.00%
1.50%
1.00%
1.50%
2.26%
1.00%
3.19%
0.50%
2.26%
2.92%
0.50%
0.00%
-0.93%
-0.50%
0.00%
-1.00%
-1.50%
-0.65%
-0.50%
-1.00%
Total income
Total cost per month
Total Profit/Loss
Total income
Total cost per month
Total Profit/Loss
Total channel cost per Rs 100 of disbursement: INR 2.93
(2% + loss of 0.93%)
Total channel cost per Rs 100 of disbursement: INR 2.65
(2% + loss of 0.65%)
Net loss/profit per transaction: INR -2.3
Net loss/profit per transaction: INR -1.6
The bank has a higher cost structure which reflects
in its higher management and supervision cost
overhead.
No Smartcard in the model, leading to lower
enrollment costs.
It is important to note that there are potential adjacent benefits which have not been accounted for on the revenue side:
• Potentially integrating the EBT channel with the broader FI strategy of the Bank (Cross sell revenues).
• This is especially relevant as the costing model accounts for broader costs such as the cost of hosting the account – which
the bank will certainly aim to offset through cross sell revenues.
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28.
Department of Post is a Unique Model in Partnership with the
Technology Provider AP Online
•
•
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Department of Post relies on Branch
Post Masters (BPMs) to distribute
60% of payments, leveraging existing
cash management networks.
BPMs are spending 40% of their time
delivering G2P payments, but not
getting adequately compensated.
They are even refusing the 0.15%
per payment.
Through a proposed hub and spoke
model, payment costs would
decrease by 24.2% from Rs 8.31
per disbursement to Rs. 6.3 (for the
average disbursement of Rs. 256)
BPM
The remaining 40% of payments
made through traditional CSP
network
CSP
•
During the month of June 2013, 61%
of payments were made through
Aadhaar authentication.
CSP
Village
3
Village
1
Village
2
Village
4
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29.
The India Post Model Has Two Possible Approaches
India Post Viability in Current Model (% of
disbursement)
India Post Viability
(% of disbursement) –Proposed hub & spoke
model
3.00%
2.50%
3.00%
2.00%
2.50%
1.50%
1.00%
2.00%
2.50%
3.24%
1.50%
0.50%
1.00%
0.00%
-0.74%
-0.50%
-1.00%
2.50%
2.46%
0.50%
0.04%
0.00%
Total income
Total cost per month
Total Profit/Loss
Total income
Total cost per month
Total Profit/Loss
Total cost per Rs 100 of disbursement: INR 3.24 (2% + loss
of 1.24%)
Total cost per Rs 100 of disbursement: INR 2.46 (2% + loss
of 0.46%)
Net loss/profit per transaction: INR -1.9
Net loss/profit per transaction: INR 0.1
• Under the hub & spoke model – the disbursement role played by higher cost BPMs is carried out by external CSPs hired
and managed by the Post.
• However, this model does not account for an additional cost of a reasonable return for stakeholders such as AP Online.
Note: The hosting charges make a big impact on all the models. For the post, hosting costs are half of bank costs – this
works out to be a substantial cost saving.
But the Post also loses any adjacent benefits (potential cross sell, etc.), which is not accounted for within this model.
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30.
Aadhaar pilot revealed many benefits and challenges of the new
DBT system
Challenges
Benefits
•
•
•
•
After the introduction of DBT, the
district administration identified ghost
beneficiaries to whom payments were
being made.
From Dec 2012 to April 2013 the
number of payments reduced from
8,884 (EBT) to 8,444 (DBT).
A large part of this can be attributed
to existence of ghost and duplicate
beneficiaries.
This accrued savings of Rs. 88,500
for the government, with the total
amount of SSP payment reducing
from Rs. 2,922,700 in Dec 2012 to
2,834,200 in June 2013
•
•
•
•
The process of seeding new banks
accounts was inefficient
Biometric authentication often fails for the
elderly.
Online authentication is an issue for areas
with low connectivity.
CSPs must do manual reconciliation based
on the amounts disbursed at the end of the
day.
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31.
A scaled up version of the Aadhaar pilot is the most efficient
model of all – but still faces a sustainability challenge
Bank Viability to Bank 4
(% of disbursement) – actuals
Bank Viability to Bank 4
(% of disbursement) – scaled up scenario
3.00%
2.50%
2.00%
2.00%
1.00%
1.50%
2.26%
1.00%
0.00%
4.40%
2.26%
2.74%
0.50%
-1.00%
-2.14%
0.00%
-2.00%
-3.00%
-0.48%
-0.50%
-1.00%
Total income
Total cost per month
Total Profit/Loss
Total income
Total cost per month
Total Profit/Loss
Total cost per Rs 100 of disbursement: INR 4.14 (2% +
loss of 2.14%)
Total cost per Rs 100 of disbursement: INR 2.48 (2% +
loss of 0.48%)
Net loss/profit per transaction: INR -4.5
Net loss/profit per transaction: INR -1.1
• Scale 22 CSPs (actual) v/s 900 CSPs (Scaled up scenario) – reduces the fixed cost overhead on the model on a per
CSP/ disbursement basis.
• Aadhaar takes out the smartcard cost and lowers some of the KYC verification costs for the Bank.
• At scale the Aadhaar enabled model goes from the least cost efficient model to the most cost efficient model
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32.
The Business Case for CSPs is Weak
On Average Agent Earns Rs 1200 Per Month for Ten Days of Full Time
Work. This is lower than the AP minimum wage rate of Rs 149 per day.
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33.
The Channel is Designed to Only Make G2P Disbursements
•
•
Regulations and technology allow the channel to be used for a range of financial
services
Current incentives of the channel make it difficult to offer any financial services
other than disbursement of G2P benefits
•
•
•
•
Commission to banks tied to disbursement in cash
Penalty of 0.1% per day for banks for every day of delay in disbursement
Mandate to disburse the entire benefit in cash within a few days puts pressure on the
channel, and makes it unavailable for other purposes
The state is setting up a parallel Financial Inclusion channel providing a range of
basic financial services
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34.
Key Messages from Supply Side Research
●
Improve Bank Business Case
•
Increase current commission paid to from 2% to 3%, and 3.5% in tribal
areas. A minimum of 1% should be passed down to CSPs
•
Remove withholding of 1% service charge
Enable banks to provide diverse financial services
Improve CSP Business Case
•
•
•
•
Remove the full disbursement mandate so that recipients can leave small
value deposits
•
Merge the G2P and FI payments by allowing CSPs to carry out other kinds
of financial transactions such as loan repayments for SHGs members
•
•
Currently CSP does not even make the daily minimum wage rate, so
increased incentives need to be prioritized
Stagger payments throughout the month to make the CSP’s role less
stressful
Systemize a process for manual overrides, where necessary
•
Online payments will not be possible in all areas. A systematic manual
process needs to be established in parallel with DBT with effective
monitoring and supervision at the village level
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35.
Government Level: Develop an integrated payment architecture, managed by
a payments unit (DBT Cell) at the state level to reduce redundancy
Department
A
Department
B
Develop standards of service delivery
Interface with providers
Department C
Monitor quality of implementation
Develop and maintain a common
technology middleware that
standardises processes
DBT
Cell
Recipients
District
Administration
Maintain a centralised complaint and
feedback centre to track quality and
hasten resolutions
Providers
Be a single point of contact for financial
service providers, technology service
providers, and agent network
management companies.
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36.
Advancing financial inclusion to improve the lives of the poor
www.cgap.org